Broadcom Plays Hardball with Emulex
Broadcom (NASDAQ: BRCM) is taking its case straight to Emulex (NYSE: ELX) shareholders.
A day after its takeover offer was rejected by Emulex, Broadcom launched a tender offer for Emulex shares at the same $9.25 a share price as the rejected merger proposal.
Unless extended, the tender offer is scheduled to expire on June 3.
Broadcom CEO Scott McGregor said in a statement that Emulex's response "and its continued unwillingness to engage in discussions with Broadcom are clearly not in the best interests of either its stockholders or its customers."
"While we much prefer to arrive at a negotiated agreement with Emulex, the Emulex board has left us with no choice but to ask Emulex stockholders to call for a special meeting of stockholders so that they can consider the merits of our offer for themselves," he added.
Broadcom said Emulex "has failed to demonstrate an ability to convert design wins into either revenue growth or market share. Over the last several years, including this most recent quarter, Emulex has continued to lose share to its larger competitor," QLogic (NASDAQ: QLGC).
Broadcom hopes to add Emulex's Fibre Channel expertise to its Ethernet product lineup for the next generation of converged data center networks.
Despite Broadcom's hardball tactics, Stifel Nicolaus analyst Aaron Rakers said in a research note today that he still believes Broadcom is likely to make a higher offer for Emulex.
In a note yesterday, JMP Securities analyst Alex Gauna said Emulex's claim of 10GbE design wins against Broadcom appears credible, noting that Emulex is using Server Engines silicon in its CNAs.
"We believe these indications to be credible given that the Server Engines engineering resources are a derivative of the accomplished and field-proven Server Works team acquired by Broadcom in 2000," Gauna wrote.
"This development puts Broadcom in a messy bind wherein it will either need to up its bid for Emulex or face uncomfortable questions regarding its CNIC roadmap now brought to light of day by Emulex," he wrote. "Based on our most recent checks, we believe Broadcom will have no choice but to up its bid. We have no material insights as to how Emulex will respond, but the tenor of its letter to Broadcom does not sound encouraging. Because the Emulex position is uniquely threatening to Broadcom, we do not see other industry players being motivated to come in over the top of Broadcom to make a more aggressive bid."
Avian Securities analyst Matthew Bryson wrote that Broadcom's harsh tone is "further evidence of the animosity between its management team and Emulex management. We see this hostile backdrop as minimizing the likelihood of a deal being successfully negotiated (particularly in the near-term)."
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